This article is for a seller contracting on FOB terms. What should the seller do when goods are unloaded without payment?

This article is for a seller contracting on FOB terms. What should the seller do when goods are unloaded without payment?

The classic situation: a seller has delivered goods and a buyer does not pay. The cargo is unloaded without the seller's knowledge and without presentation of the original bills of lading. The seller is left with no money and no goods, but has a desire to recover one of the two.

In this article, we explain how to avoid such a situation or, if it is too late to do so, how to increase the chances of recovery.


In our recent case, the seller (who we shall call OilTrade) sold sunflower oil to the buyer (who we shall call Ether) on FOB terms. The contract provided for a "cash against documents" payment method was governed by English law, and included a FOSFA arbitration clause.

The goods were loaded and the shipowner issued bills of lading. OilTrade sent scanned copies of the shipping documents to Ether upon its request and sent the originals to Ether’s bank to receive payment. For several weeks, Ether promised to pay but did not do so.

A month later, it turned out that the goods had already been unloaded in Rotterdam (even though Ether did not have the original bills of lading "in hand", only scanned copies). At this point, Ether stopped communicating wth OilTrade.

OilTrade contacted the shipowner and the ultimate consignee (who we shall call Nomax). It turned out that Nomax had bought the goods from Ether and had already paid for them relying on scanned copies of documents. At the same time, Nomax also acted as the charterer of the vessel. Relying on a Letter of Indemnity (“LOI”) from Nomax, the shipowner unloaded the cargo in Rotterdam without the original bills of lading.

Nomax's position was that an agreed purchase goods had already been paid to Ether, OilTrade had no contract with OilTrade, so all claims should have been made against Ether.

The shipowner's position was that it had not signed a charter with OilTrade, so all claims should have been made against Nomax or Ether.

Why did this happen?

The seller on FOB terms is not a charterer of the vessel. Accordingly, it cannot give orders to the vessel and has no actual control over its cargo after loading.

Generally, the consignee must present the original bills of lading to the shipowner to receive the cargo. Otherwise, the shipowner risks receiving a claim for wrongful discharge from the bill of lading holder.

However, the consignee can also receive the cargo without the original bills of lading by providing the shipowner with an LOI. In simplified terms, an LOI is a letter by which the consignee grants the shipowner with an indemnity against claims for unloading without the original bills of lading. The possibility of unloading under an LOI may be stipulated at the time of entering into the charter, or the parties may agree on it at a later date. By accepting the LOI, the shipowner assumes the risk, but in return avoids downtime and releases the vessel for the next voyage.

In our case, the original bills of lading were left with the seller, but Nomax was able to unload the cargo based on the LOI.

Options for actions

The most obvious option was to file a claim for non-payment against Ether to FOSFA (as the OilTrade-Ether contract stipulated). But arbitration can last up to a year and sometimes longer, especially if the defendant wants to drag out the process. At the same time, there was no guarantee that Ether would have any funds at the time of enforcement, or that Ether would not become bankrupt.

It also made sense to try to claim compensation from the shipowner and Nomax, because:

  • The cargo belonged to OilTrade, because the title did not pass to Ether (under the OilTrade-Ether contract, the title passed only after the full payment was made) and therefore could not pass from Ether to Nomax. So Nomax did not own the cargo.
  • The shipowner unloaded the goods without providing the original bills of lading, of which OilTrade had always been the holder, thus violating its shipping obligations.

Nevertheless, there were several practical problems here.

First, the dispute between OilTrade and Nomax was non-contractual, meaning that it was not clear where to file suit, and under which law the dispute would be heard. But since the cargo had been offloaded in Rotterdam, there were grounds for referring it to Dutch law and courts.

Secondly, in relation to OilTrade's dispute with the shipowner, the bills of lading for the cargo were issued on the pro forma basis of the Congenbil 1994. Paragraph 1 of the rules on the reverse side of this bill of lading incorporates the arbitration clause and the chartering right

bill of lading

On the basis of this clause, OilTrade could have sued the shipowner in arbitration for wrongful discharge of the cargo. The problem was that OilTrade (like any FOB seller) did not have a copy of the charter to consider which arbitration proceedings to initiate.

Another issue was the need to determine correctly to whom the claims should be made. The vessel's register showed two shipowners: a disponent owner (the actual ship owner) and a registered owner (the registered ship owner).

Usually, a claim is brought against the company on whose behalf the ship's master issued the bills of lading. Very often this cannot be determined from the bills of lading (as in this case): they may only have the ship's seal and the captain's signature. It is possible to determine on behalf of which company the master has signed the bills of lading at the type of charter:

  • If it is a time charter, one should bring a claim against the registered owner (as the vessel is chartered together with the crew);
  • If it is a bareboat charter, you should bring a claim against the disponent owner (as the charterer is responsible for crewing the vessel).

We tried to clarify these issues with the shipowners and Nomax, but they refused to assist. Eventually we decided to file claims against both shipowners under the auspices of the LMAA under English law, as this is the most common forum for resolving such disputes. Our plan was that if the shipowner claimed in arbitration that we had gone to the wrong company or the wrong place, we would ask for all arbitration costs to be recovered, as this situation had arisen because the shipowners had not cooperated with OilTrade.


Sometimes a claimant may seize a debtor's accounts or property to support its claim in court or arbitration. In legal language, this is called "securing the claim". To strengthen our position, we decided to:

  • arrest the cargo in Rotterdam;
  • arrest the vessel in Malta.

The main difficulty was finding property that could be seized, however, we managed to effect both arrests based on the information available to us.

Arrest of cargo in Rotterdam

We only knew the name of the terminal where the cargo had been unloaded. The date and exact place of unloading remained unknown (the terminal in question had a lot of storage space in Rotterdam). It was also unclear whether the cargo was still at the terminal, as it had been offloaded several months earlier.

Dutch law provides for a flexible seizure procedure: it can be imposed on any similar cargo stored in the debtor's quota at the terminal, even if the exact place of the cargo is not known.

However, there is always the risk that the debtor may have already removed the entire cargo from the terminal. The time and funds for the seizure would then be wasted. In our case, we decided to proceed because Nomax was a large company active in the oilseeds market. Usually, such companies have at least some quantity of cargo in their quota.

Also, we needed to specify in support of which claims the arrest application was made. In order to minimise the risks, the best option was to seek a court order in support of the seizure:

  • A future lawsuit against Ether for non-payment for the goods (i.e. institute FOSFA proceedings in any event);
  • A future claim against Nomax for damages for wrongful disposal of cargo owned by OilTrade.

The Dutch court imposed the arrest one day after we applied for the same. After receiving the seizure order, the terminal confirmed that it was still storing the Nomax cargo.

Arrest of the vessel

We then traced the vessel`s movements and found that she was sailing to Malta. We were fortunate because it is relatively straightforward to get an arrest warrant issued in this jurisdiction. By then (a few days after the arrest in the Netherlands) we were already provided with a copy of the charter, so we knew exactly against whom to make the arrest.

The application for arrest was prepared within a few hours. We applied to the Maltese court to arrest the vessel in support of a future claim against the shipowner under the auspices of the LMAA. Less than 24 hours later, the court imposed the arrest.

What happened next?

After the arrests were made, Nomax got in touch with OilTrade very quickly. The shipowner's business was effectively blocked, and it was suffering serious losses due to vessel downtime caused by the arrest. The shipowner began to put pressure on Nomax to reach an amicable settlement with OilTrade.

As a result, OilTrade and Nomax entered into a direct contract whereby Nomax paid OilTrade the contract value for the cargo (in effect, Nomax paid twice for the cargo). After that, OilTrade lifted the arrests.

OilTrade then initiated FOSFA arbitration against Ether, where it aims to recover its costs of obtaining the arrests and damages for breach of contract.

Danil Hristich, Head of Fortior's Ukrainian office, Sergey Platonov (Associate) and Giles Xuereb (of Counsel) were in charge of this matter.

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Related Services:
GAFTA & FOSFA Dispute Resolution GAFTA & FOSFA Dispute Resolution
Team members
Danil Hristich
Sergey Platonov
Giles Xuereb
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